Foreign Brands Challenge Hyundai on Home Turf

By Kyong-Ae Choi

Getty Images

Kia K7 sedan in 2010.

SEOUL—Hyundai Motor Group has been a recent standout success story in the global auto market, as its Hyundai and Kia brands have logged double-digit annual volume gains. But the group has slipped into reverse in one unlikely location: its South Korean home.

Free-trade deals that have halved tariffs on foreign cars here helped push up imported autos to 10% of sales for the first time last year, up from less than 2% a decade ago, while Hyundai’s domestic sales fell for the first time since the global financial crisis in 2008.

Hyundai remains the dominant auto maker in South Korea, selling more than two of every three cars, but the growth of foreign brands has prompted it to offer deep discounts and generous exchange programs.

Another sign that Hyundai perceives a need to tackle imported-car makers: a Hyundai brand showroom is planned for an affluent district in the Gangnam area of Seoul now populated with imported-car stores.

South Koreans have long backed the home team when buying cars. Cheaper maintenance and repair costs for local autos add to their cost advantage. But a halving of import tariffs to 4% on cars from the U.S. and European Union after free-trade deals has eroded that advantage.

The tariffs will be scrapped altogether over the next few years.

A strengthening won has also allowed some foreign car makers to lower prices for the South Korean market for 2013.

“I considered buying the Kia K7 sedan but bought a BMW 320d instead as its fuel efficiency is three times higher than the K7, and I found the price gap between the two models narrower than before,” said Brian Koh, a 39-year-old who works for a publishing company in Seoul.

The German diesel sedan became cheaper by as much as 1.2 million South Korean won ($1,100) after the implementation of the EU trade deal in 2011.

Combined domestic sales of Hyundai and Kia brand cars declined by 2.3% last year. In response, Hyundai cut prices of five mainstay models, including the Sonata midsize sedan, by as much as one million won. Kia reduced prices on three major models, including a discount of as much as 2.9 million won for the luxury K9 sedan.

“We have introduced competitive pricing in order to keep our lead against import car brands in the home market,” Kia Motors Corp. said in a written statement. Kia is also allowing customers to swap vehicles for a different model in the K-Series lineup 25 days after registration.

German brands from BMW AG and Volkswagen AG have led the way in the import market, accounting for 64% of imported-car registrations last year, followed by Japanese brands with 18% and U.S. autos with 7.4%. Sales of diesel-powered cars—most of them from Germany—accounted for more than half of sales.

Comments (1 of 1)

This should not be a surprise to Hyundai or anyone else. Foreign automakers have been challenging the US automakers on their home turf for decades and consistently won, year over year, to where the market share of the foreigners in the US is actually greater than that of the domestic automakers.

That was just one reason why GM and Chrysler died. Not enough buyers at home.